The Merger of Utilities and Telecoms- A Quintuple Bundle?

Telecommunications companies have shown considerable interest in becoming players in the smart grid. Several have been quick to put themselves forward as strategic partners to utilities, seeking to develop their own smart networks.

Published: Wed 14 Nov 2012

A development that appears to have gone down well with consumers over the last decade or more, since the advent of more sophisticated communications options, is the “triple bundle” where telecommunications companies bundle together phone, cable and internet, allowing consumers to leverage what were once wholly independent services against each other, both for their own financial benefit (a triple package is usually more cost effective than buying the three services separately) and in order to gain added function through services that mesh neatly together.

Telecoms companies have shown considerable interest in becoming players in the smart grid, and several have been quick to put themselves forward as strategic partners to utilities seeking to develop their own smart networks.

Investment of $23M in Home Security, Home Energy Management start up iControl by a consortium including telecoms provider, Comcast

According to many analysts, quadruple, quintuple or even wider bundling of services makes consumer sense. These are all services containing a large commodity element to them, provided to the consumer by a remote supplier over a distribution network. Billing is related directly to quantity consumed and the same back end billing and accounting software can, with relatively minor modification, as easily be used for KWh as phone minutes.

The consumer view is favourable. A survey released in 2011 by Accenture found the following:

73% of consumers would consider buying electricity from companies other than traditional energy providers

22% were willing to buy from their cable or phone company

90% of consumers in China, South Korea and Singapore would buy from non traditional sources

Despite this, the evidence to date is that telecoms providers and utilities have been less eager to bundle their services together in any more extreme fashion though there have been a few notable exceptions.

Utility/Telecoms alliance in Australia

ActewAGL is a utility operating in the Australian Capital Territory (ACT), offering its customers up to seven services, including electricity and natural gas. The main incentive for customers is a reduction in their bills. The utility was deregulated and became subject to wider competition in 2003, although the rates it may charge for electricity remain heavily influenced by government tariffs.

Against this background, and in an effort to remain competitive, that ActewAGL in partnership with Telecom provider TransACT began to bundle the electricity, natural gas and phone services that most of their customers already had. The range of bundling options has grown steadily since 2003, with the fairly straightforward proposition that the more services consumers include in their bundle, the more money they will save.

The basic bundle that customers MU ST take is three basic services, reducing bills by 3%. However, add a further four (green energy, cable, cell phone and internet) the saving rises to 25% on either their phone or electricity bill, up to a maximum of AU S$500 in any one year.

Issues that ActewAGL had to face:Customer perception

A key objective of bundling was to make the customer service experience as seamless as possible, this was achieved through major investment in systems and processes

Price shock:

When services are bundled, the monthly or quarterly bill will look significantly higher than what customers are accustomed to. To minimize the shock, services and their associated costs are listed separately in the utility bill.

By 2010, ActewAGL saw a 25% growth in bundling amongst its 135,000 customers.

While the partnership is currently limited to service bundling, it is clear that it also provides a useful springboard for future strategic working by ActewAGL and TransACT on areas such as the smart grid.

Factors that possibly contribute to the success of this model are:It is small/localised

A larger initiative might be harder to communicate and manage, and the scope of the initiative is largely restricted to the Canberra area.

Consumer attitude

Australian consumers are significantly more “green-minded” than those in the US or many parts of the rest of the world

Incremental growth and “baby steps”

The companies involved in this project did not dazzle their customers with high level visions. Rather, they built on areas that consumers were familiar with and, as confidence grew, so they were able to expand the bundles on offer.

Final Word

The march to a data-driven grid will remove integration and collaboration barriers, particularly in the areas of billing and cross-charging. It is predicted that the collaboration between telecoms and energy companies will escalate in the future. Telecoms will bring with them their experience in the area of price-modeling, innovation and customer service. These alliances will lead to mega-mergers in territories where regulatory and competitive frameworks permit.